Intestacy Happens

If a person dies without making a Will he/she dies intestate. Without a Will, a decedent’s property will pass according to the State of Connecticut Intestate Succession Laws. If you are thinking that “intestacy” sounds like some sort of sickness, you may not be too far off the mark. When you see how the state distributes the funds of those who die intestate… you may feel a little sick.

In Connecticut, State statutes provide that if a person dies intestate, and there are children that are the children of the decedent and the spouse, the surviving spouse will receive the first $100,000 plus one half of the balance of the intestate estate. The children will receive the remainder. For example, assume a $500,000 estate: The spouse will receive $300,000 ($100,000 plus half of the remaining $400,000) and the children will receive the remaining $200,000 in equal proportions ($100,000 each). Now let us suppose that there is only one child who is 18 years-old. Even a very mature 18 year-old may have difficulty handling a check for $200,000.

Typically, when most people plan out their estate, they want all of their assets to go to the surviving spouse and not to their children. The thought is that the surviving spouse is in the best position to use the assets wisely for the benefit of the children. In many scenarios it does not make sense to hand a large sum of cash over to a child or young adult. Imagine trying to convince an 18 year-old into investing his/her money in a college education — good luck.

The rules are different if the decedent had children that were not children of the surviving spouse. In this case, the surviving spouse would receive one-half of the intestate estate, and the children would receive the balance. This solution seems to be based in logic. The state wants to make sure that the step-children of the surviving spouse are not taken advantage of by a person who is not related to them by blood. While this plan works in preventing the aforementioned problem, it still puts money into the hands of people who may not be ready to handle it. With a Will based plan you can direct where your assets go, as well as direct appropriate measures to protect your children from the problems that come with receiving a large sum of money outright.

If there are no children of the decedent, but the decedent is survived by a parent or parents, the spouse does not receive the entire intestate estate. In this scenario the surviving spouse will receive the first $100,000 plus three-quarters of the balance, and the parents would receive the balance of the estate. Furthermore, if there are no heirs to the estate, the decedent’s money, property, etc., will escheat to the state and the state will become the owner. It’s probably not a coincidence that you cannot spell escheat without “c-h-e-a-t.”

As you can see from the above sampling from the Connecticut Intestate Succession Statutes, by not planning for the disposition of your property the state has a plan for you. It should be no surprise that control freaks hate the laws of intestacy. It takes control (albeit control that was never exercised) of a person’s hand and vests that control with the State, who then applies cookie cutter solutions for unique situations. The only way to avoid intestacy is to make sure that you have a validly executed Will. Any other plan will fall short.

QDOTs: Not coming soon to a theater near you!

If you are married and not a United States citizen or if you are married to a person who is not a United States citizen you need to plan your estate accordingly. Under the tax code married citizens are treated differently than married non-citizens. Under the rules for married citizens, if one spouse dies all of the assets pass tax free (via the unlimited marital deduction) to the surviving spouse, with estate tax due at the death of the surviving spouse. This is not the case for a married couple in which one spouse is not a United States citizen. Unless properly planned for, the unlimited marital deduction is lost between a citizen spouse and a non-citizen spouse.

There are very good reasons to treat non-citizens different than citizens in this situation. The primary concern of the government is that the surviving spouse, who is not a citizen, may move back to their country of origin after the death of their citizen-spouse, and take their assets with them. Once the assets are out of the country and belong to the citizen of another country, the odds of the IRS being able to collect the taxes due are greatly diminished. In short, the government wants their money and unless the non-citizen spouse plays by the government’s rules they will have to pay up at the first death.

The United States tax code makes certain allowances for married citizens. Assets that pass from a United States citizen to his or her United States citizen spouse generally qualify for the unlimited marital deduction, which allows for an unlimited amount of assets to pass from spouse to spouse without any tax liability. This is not the case when one of the spouses is not a United States citizen. Non-citizens have to take extra steps in order to qualify for the unlimited marital deduction.

In order to take advantage of the unlimited marital deduction the citizen spouse must pass assets to their non-citizen spouse via a Qualified Domestic Trust (QDOT). A QDOT has several requirements. Basically, there must be at least one Trustee who is a U.S. citizen. Furthermore, the tax code requires that the Trustee must have the right to withhold the tax due from any distribution to the non-citizen spouse. The tax code also requires the Executor of the decedent’s estate to elect for QDOT treatment.

A QDOT is the only way to preserve the unlimited marital deduction between a citizen and non-citizen spouse. Although they should ask, make sure your attorney is aware that you are not a citizen, as this will greatly affect your estate plan.

What the heck does “Per Stirpes” mean anyway?

You know your old friend Per Stirpes. You remember – from your Will…right there in Article Four. “My Executor shall distribute the remaining property to my descendants, per stirpes.”

At least once a week someone asks me about per stirpes. Let me see if I can explain it and not sound like a lawyer (no easy task). Okay, here goes- Whenever a distribution is to be made to a person’s descendants per stirpes, the distribution shall be divided into as many equal shares as there are then living children of such person and deceased children of such person who left then living descendants. Each then living child shall receive one equal share and the share of each deceased child shall be divided among such child’s then living descendants in the same manner.

How’s that for non-lawyer talk? Well, I may have fallen a little short of the mark- how about an example? George has two children: Marc and Heather. George dies and leaves his estate to both Marc and Heather, per stirpes. Marc has predeceased George but has two children, Ernie and Haley. Heather takes fifty percent (50%) of George’s estate. The other fifty percent (50%) is divided equally between Marc’s children Ernie and Haley. And that is per stirpes in a nutshell.